Amazon has taken the world by storm, completely disrupting the status-quo retail model in the process. Yet, Best Buy is still the world’s largest consumer electronics retailer.
As other brick-and-mortar electronics retailers, like Circuit City, have gone by the wayside, many have speculated that Best Buy would be close behind… joining the graveyard of retailers slain by online, price-cutting competitors.
For a while, Best Buy was viewed by many as the chump – serving only as a “showroom,” where shoppers could come to touch and test new products, only to leave the store and make the purchase online for a slightly cheaper price.
This show-rooming story was most prominent in 2012. People were predicting Best Buy’s demise and the company’s stock price believed the pitch, losing 49% that year.
But Best Buy showed it wouldn’t go down without a fight. The company implemented a price-match guarantee and began embracing the show-rooming phenomenon, instead of fearing it.
Last month, Best Buy’s CEO made a bold proclamation, saying: “A year ago, people said that show-rooming would kill Best Buy. I think Best Buy has killed show-rooming.”
So, is that true?
Here’s a chart showing the ratio of share prices for Amazon and Best Buy (AMZN:BBY)…
While Amazon’s share price dominated Best Buy’s from 2006 through 2012, the ratio shows a sharp drop in 2013, indicating Best Buy made up some ground in this tug-o-war match.
Of course, Amazon’s stock was no dud this year. It’s up 55% year-to-date.
Yet, Best Buy’s stock price trounced that, gaining 250% since January 1.
I don’t think the show-rooming debate is over. For most of the year we too thought that Best Buy was on its last legs… that it couldn’t possibly survive for much longer. But the company has surprised us and proved itself more resilient than we gave it credit for. It has clearly stopped the bleeding, proving it can adapt to the evolving buying habits brought about by the prevalence and ease of online shopping.
However, while pledging to match online competitors’ lower prices may prevent some of Best Buy’s shoppers from walking out of the store empty-handed, a race to the bottom will be difficult to maintain in the long run, as brick-and-mortar retailers still fight with the disadvantage they have in their higher overhead expenses.
Ultimately time will tell… but for now, I wouldn’t bet on Best Buy’s imminent collapse and you shouldn’t either.
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